Government modelling shows power prices will fall if RET stays

Lisa Cox, Peter Hannam

The federal government’s case to scrap or weaken the Renewable Energy Target (RET) has been dealt a blow, with modelling it commissioned for the review showing consumers will be better off if the target is kept.

ACIL Allen, the firm hired by the government’s handpicked panel reviewing the target, has presented preliminary figures showing household bills will be higher in the years to 2020 but after that they will start to fall and consumers will be better off by an average $56 a year from 2021 and $91 a year from 2030.

Extending the goal to sourcing 30 per cent of electricity from renewable sources by 2030 has even larger savings in the 2021-2030 period, averaging $109 a year, more than offsetting an initial $47 increase from 2015-2020.

“It kills off their efforts to repeal the RET,” said John Grimes, chief executive of the Australian Solar Council. “The repeal case is the most expensive, and the one with the most renewables deployed – the RET target of 30 per cent by 2030 – ends ups being the cheapest for consumers.”

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Clean Energy Council Policy Director Russell Marsh said the modelling “put to bed” two arguments against the RET, with analysis broadly in line with Bloomberg New Energy Finance, ROAM Consulting and others.

“It shows that the target can be met by the end of the decade, and it also shows that cutting the RET would result in higher power bills," Mr Marsh said.

“If the target is removed, households and businesses will be exposed to more high-cost gas power, which most analysts are predicting will get increasingly expensive this decade.”

Government view

Earlier this year, Prime Minister Tony Abbott said the RET was having a “not insignificant” impact on power prices and if renewable energy went too far “it becomes very, very costly”.

"The panel commissioned modelling as one input to its investigation," a spokesman for Prime Minister and Cabinet said. "In making its recommendations to government, the panel will consider the final modelling report along with information and submissions provided by stakeholders during consultations.

"In interpreting the preliminary modelling results, account should be taken of the caveats placed on the modelling by the consultant."

Environment Minister Greg Hunt said on Wednesday that the challenge for the RET review was to find a balance between jobs and investment and removing pressure on electricity prices.

He said he would not pre-empt a decision by cabinet, but acknowledged that removing the RET would not have a ''downwards impact of any significance'' on electricity prices.

"My own view is that the renewable energy target is an important part of what we do," Mr Hunt said.

"We are assessing what is the right balance going forward."

As the government again goes after the opposition to support the repeal of the carbon tax, Mr Hunt said "all of the research" had shown that the effect of the RET was "somewhere between 3 and 4 per cent on electricity bills but to remove it would not have a downwards impact of any significance".

"We want lower electricity prices and you can get on average a 9 per cent decrease in electricity prices...abolishing the carbon tax ," he said.

The selection of ACIL Allen to inform the review of Australia’s target of 41,000 gigawatt-hours of renewable energy by large generators by 2020 prompted controversy because of the company’s perceived closeness to the fossil fuel industry.

But the company’s preliminary modelling, presented at an industry workshop with the RET review’s expert panel on Monday, backs data commissioned by the Clean Energy Council, which found consumers would be about $50 a year better off by 2020 if the current target settings were kept.

ACIL Allen's data shows that while consumers would see a short term increase of about $54 a year to 2020 if the current target was kept, they would be worse off over the longer term if it was axed or if new companies were prevented from entering the scheme.

The figures also show that Australia's annual carbon emissions will be about 24 million tonnes a year lower between 2020 and 2030 with a RET in place.

The modelling is likely to increase pressure on the government to retain the target and comes after an annual poll for the Climate Institute found 71 per cent of Australians support the current target or higher.

The expert reference panel is due to report at the end of next month.

There have been fears the Abbott government will axe or reduce the target after it scrapped the Australian Renewable Energy Agency in the May budget.

It has received thousands of submissions to its review, with key business lobby the Australian Industry Group backing claims that reducing the RET will not lead to a fall in power prices.

The Business Council of Australia says the target is no longer relevant, and in its submission called for the target to be amended to a "true" 20 per cent and then abandoned in 2030.

'Biased assumptions'

Solar Council’s Mr Grimes said the positive longer-term outcome for consumers with the target came despite “prejudiced and biased” assumptions that favoured fossil-fuel generators.

The assumptions, and failing to take in the full social benefits of solar photovoltaic panels, include a view that decrepit coal-fired power plants could operate for 75 years, and that gas prices will fall between now and 2016 before remaining near current prices out to 2040.

Gas prices are expected to double in coming years as domestic prices rise to international levels.

The base model also assumes there will be no carbon price out to 2040, a view that is “unjustifiable”, Mr Grimes said.

While in line with the Abbott government’s plans to scrap the carbon tax when the new Senate sits next month, such a stance reflects “an isolated island of opinion”, given the way much of the world is headed, he said. “Their position will not last until 2020, much less until 2040.”